@Vanessa A
You can't claim an exemption on the capital gains for the time you occupied the home because it was longer than 5 years ago so this home does not count as your personal residence anymore.
That's not quite right. They most definitely do qualify for at least a partial exemption. Per IRS Publication 523, page 4 under "Exceptions to the Eligibility Test" it states:You were a service member during the ownership of
the home.
Also read the 2nd column on that same page and you'll see they can "suspend" the 5-year look back period for ownership.
Additionally, since they were relocated on official government orders, they qualify for a partial exclusion since they lived in the property for less than two years "because" of official government orders.
@jmbland assuming the property was classified as a rental at the time you sold it, the instructions below will apply. I can't stress enough to "read the small print" on each and every screen before you make any selections or enter any data.
Reporting the Sale of Rental Property
If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.
Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will have a selection on it for "I sold or otherwise disposed of this property in 2023". Select it. After you select the "I sold or otherwise disposed of this property in 2023" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even if it's zero. Then you MUST work through the "Sale of Property/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were sold).
Understand that if more than the property itself is listed in your assets list, then you need to allocate your sales price across all of your assets. You will only allocate the structure sales price; you will NOT allocate the land sales price, since the land is not a depreciable asset. Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1 on some assets. Likewise, if you sold at a loss then you must show a loss on all assets, even if that loss is $1 on some assets.
Basically, when working through an asset you select the option for "I stopped using this asset in 2023" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.
When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.
